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Wandling Law Group, PC

5101 Thimsen Avenue | Suite 200
Minnetonka, Minnesota 55345
Phone: (952)-474-4406
Fax: (952)-470-1989
info@wandlinglaw.com

Limited Partnership (LP)

Overview

Limited Partnership (LP)

Description

A limited partnership is a type of partnership in which limited partners share in the partnership’s liability only up to the amount of their investment in the limited partnership. A limited partnership must have at least one general partner and one limited partner. The general partner is responsible for day-to-day management of the limited partnership, and is responsible for the debts and obligations of the limited partnership. The limited partner, in exchange for limited liability, is usually not involved in the day-to-day management and control of the business. A limited partnership may register with the Secretary of State as a Limited Liability Limited Partnership.

Recommended For

LP's are often created when one or more owners provide the financing ("limited partners") and the other owners provide the operational expertise of running the business.

Advantages of LP

♦ Easier to attract investors since the only liability for limited partners is the capital they invest in the business.
♦ This agreement allows general partners to use their knowledge, make key decisions, and manage the business.
♦ Limited partners can depart the business or be replaced, without the need for the limited partnership to be disbanded.

Disadvantages of LP

►There are more filings, formalities, and state requirements with limited partnerships.

►General partners assume personal liability unless the partners form an LLC corporation or other company with limited liability protection.

Ownership

Every limited partnership must have at least one limited partner and at least one general partner.

Personal Liability

An obligation of a limited partnership, whether arising in contract, tort, or otherwise, is not the obligation of a limited partner. A limited partner is not personally liable, directly or indirectly, by way of contribution or otherwise, for an obligation of the limited partnership solely because of being a limited partner, even if the limited partner participates in the management and control of the limited partnership.

Formalities & Record Keeping Requirements

In order for a limited partnership to be formed, a certificate of limited partnership must be delivered to the secretary of state for filing. In each calendar year following the calendar year in which a limited partnership becomes subject to this chapter, the limited partnership must deliver to the secretary of state for filing an annual renewal containing the information.

Taxation

The business taxes of the partnership are allocated according to the partnership agreement, or lacking such an agreement in a pro-rata form to each partner, subject to special rules which apply to the interests of the limited partners. The partner’s income tax is computed at the higher “self employment” rate. 
 

Tax Reporting
If you are a partnership then you may be liable for...
Use Form...
Annual return of income
Employment taxes:
  • Social security and Medicare taxes and income tax withholding
  • Federal unemployment (FUTA) tax
  • Depositing employment taxes
Excise Taxes
Refer to the Excise Tax Web page

Chart 2 (Individual Partners in a Partnership)

If you are a partner (individual) in a partnership then you may be liable for...
Use Form...
Income Tax
Self-employment tax
Estimated tax


Management & Operation
Owners may be an active participant or a passive owner. Typically, the management of a limited partnership is vested in its general partners. Limited partners will generally not participate in the management of the limited partnership because, under most state laws, to do so would cause the limited partner to be reclassified as a general partner and subject to partnership liabilities. The LP typically is used to allow passive involvement of investors who trade voting rights for liability limits not otherwise available to the general partners.

Formation Requirements
321.0201 FORMATION OF LIMITED PARTNERSHIP; CERTIFICATE OF LIMITED PARTNERSHIP.
(a) In order for a limited partnership to be formed, a certificate of limited partnership must be delivered to the secretary of state for filing. The certificate must state:
(1) The name of the limited partnership, which must comply with section 321.0108;
(2) The street and mailing address of the initial designated office and the name, street, and mailing address of the initial agent for service of process;
(3) The name and the street and mailing address of each general partner;
(4) Whether the limited partnership is a limited liability limited partnership; and
(5) Any additional information required by article 11.
(b) A certificate of limited partnership may also contain any other matters but may not vary or otherwise affect the provisions specified in section 321.0110(b) in a manner inconsistent with that section.
(c) If there has been substantial compliance with subsection (a), subject to section 321.0206(c) a limited partnership is formed when the secretary of state files the certificate of limited partnership.
(d) Subject to subsection (b), if any provision of a partnership agreement is inconsistent with the filed certificate of limited partnership or with a filed statement of dissociation, termination, or change or filed articles of conversion or merger:
(1) The partnership agreement prevails as to partners and transferees; and
(2) the filed certificate of limited partnership, statement of dissociation, termination, or change or articles of conversion or merger prevail as to persons, other than partners and transferees, that reasonably rely on the filed record to their detriment.
History:



LP Minnesota Requirements for Name Filing 

Minnesota Secretary of State – Limited Partnership